Many Australians don’t know enough about pensions and head for an uncomfortable retirement if they don’t take action.
Figuring out how much retirement pension you need to retire comfortably is crucial to avoiding being caught off guard, but one thing is clear: Those who drew on their nest egg during the pandemic will be considerably worse off if they are. they are not catching up.
We’ve all heard alarming stories of Australians taking advantage of the Covid-19 early release program when they weren’t going through the financial hardships it aimed to alleviate – renovating their homes, buying furniture, etc.
Some withdrew all of the authorized $ 20,000 in two installments: once in fiscal year 2019-2020, and once between July 1 and December 31, 2020, when the program ended.
According to SuperRatings, trading in your superannuation account has a big impact in the future as you lose compound interest.
The Australian Securities and Investments Commission researched this and estimated, based on their MoneySmart calculator, assuming income of $ 50,000 and a retirement age of 67:
* For a 30 year old, withdrawing $ 20,000 from their Super will have reduced their balance by approximately $ 43,000
* For a 40 year old, withdrawing $ 20,000 from their Super will have reduced their balance by approximately $ 35,000
* For a 50 year old, withdrawing $ 20,000 from their super will have reduced their balance by more than $ 28,000
“We encourage members to seek financial advice from their super fund or from an advisor they trust to understand how early access to their retirement pension may have impacted their account and what actions they might take. take to help rebuild their nest egg “, Camille Schmidt, head of market analysis at SuperRatings. told NCA NewsWire.
Another impact of the pandemic on pension balances was that people changed the type of fund at risk they had, with some Australians scared of falling stock markets switching to a cash option.
“We have found that a member who had a balance of $ 100,000 in January 2020 and went from balance or growth to money in late March would now be around $ 25,000 to $ 30,000 behind. position if it hadn’t changed, âMs. Schmidt said.
âIn addition, members who remained in a balanced option recovered their losses by November 2020. Similarly, members who stayed the course in a growth option saw their balances recover losses by December 2020 .
âThis highlights the problems with trying to time the market. “
SuperRatings estimates that the median balanced options fund has grown over 140 percent over the past 15 years, with a balance of $ 100,000 in September 2006 accumulating to $ 242,603.
During the same period, members of the growth fund had an even stronger result, with the same starting balance reaching $ 247,549.
But equity-focused options have generated the highest returns over the past 15 years, with the median Australian stock option dropping from $ 100,000 to $ 270,190 and the median international stock option dropping from $ 100,000. at $ 261,803.
These types of options involve bigger ups and downs over the years.
SuperRatings indicates that the 2021 calendar year to date has been a period of robust growth for pensions, with the median balanced option up 11.2% – well above the funds’ targets, the Executive Director of SuperRatings, Kirby Rappell.
â2021 has been a strong year for pensions, with returns almost three and a half times those of calendar year 2020 and almost double the annual average of the past 20 years,â said Mr. Rappell.
However, the performance of different funds varies enormously.
In August, the Australian Prudential Regulation Authority published the results of its first performance test of super products, concluding that 84% passed.
But the following 13 products failed:
* Super AMG
* Australian Catholic Pension and Retirement Fund
* AvSuper Fund
* BOC Gases Superannuation Fund
* Super Christian
* First Colonial State First Choice
* Commonwealth Bank Group Super
* Energy industries pension plan – Pool A
* Union cooperative pension fund
* Super Maritime
* Retreat wrap
* The Victorian Independent Schools Superannuation Fund
So how do you know how much you need for your retirement?
Mr Rappell said a rule of thumb is to target a number and then go back, factoring in retirement and aging assets to get the full picture.
Also, it might be better to collect income rather than cashing out a lump sum, he said.
âPlanning well and planning early has a huge impact, as far too many Australians still don’t know their super fund offers an earmarked income stream / pension (a super account that you can withdraw over time) that compares. very good to everything that exists. in a bank, âsaid Mr. Rappell.
According to the Association of Superannuation Funds of Australia retirement standard, for those who want a “comfortable retirement,” members should aim for a balance of about $ 640,000 for couples and about $ 545,000 for singles.
Based on these balances in retirement and assuming you own your own home, an income of approximately $ 45,000 is generated for singles and $ 64,000 for couples each year.
The retirement standard also indicates how much you need for a âmodestâ retirement.
ASFA has created a calculator which relies on average balance data for different age groups to give an idea of ââthe balance you should expect. All you need to do is enter your year of birth.
With today’s low interest rates, which means money in a bank appreciates little right now, now is a good time to consider recharging your super.